How Are Firms Making Social Disclosures?

How Are Firms Making Social Disclosures?

To understand how organizations are making social disclosures amid increasing pressure from stakeholders and a disjointed regulatory environment, Verdantix analysed the most recently published annual reports and sustainability reports from the top 10 firms in the EU, the UK and the US, based on the Global 500 List of 2022. This analysis finds that organizations are exhibiting:

• Reliance on voluntary frameworks including GRI, SASB and SDGs.
  In the absence of a cohesive social disclosure regime, most firms make disclosures in accordance with voluntary principles. Standards and frameworks such as the United Nations Sustainable Development Goals (SDGs), the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI) were referred to in most reports across the regions. For example, Apple Inc in the US and Legal & General in the UK interpreted all three frameworks for social disclosures in their sustainability and integrated financial reports respectively.
• Coverage of two major themes – diversity, equity and inclusion, and human rights.
  Although most firms approach these disclosures with a qualitative lens or limit reporting scope to the ‘number of female employees’, examples in the automotive industry contextualized such numbers through the gender diversity index – Volkswagen – and expanded diversity characteristics to age as well sexual orientation – Mercedes Benz. In line with regulatory requirements, all organizations in the UK report on gender pay gaps. For human rights, the focus is on due diligence, specifically in supply chains.
• Major differences among the US, UK and EU regarding reported information.
  The US, the UK and the EU are at varying stages in their journeys to implement sustainability regulations. This difference is evident in the kinds of social disclosures firms are making in each region. In the UK, organizations make disclosures aligned with pay gap reporting and modern slavery regulations in some form in their annual financial reports. Even though the Women on Boards Directive and the Pay Transparency Directive are yet to be enforced by nation states, firms in the EU are already making human and social disclosures voluntarily. For instance, Fortum made a wide variety of disclosures in its sustainability report, such as diversity at the board level, firm wide gender diversity and stakeholder engagement. However, most organizations in the US make minimal social disclosures in their annual reports – in sustainability reports, though social disclosures occupied some space, the quality of reporting left a lot to the imagination.
• Lack of consistent, comparable data.
  The analysis revealed that firms are struggling to produce meaningful qualitative data, as well as quantitative data that is consistent and comparable. A lack of good data undoubtedly hinders organizational ability to maximize social impact performance. Regulators are failing in their fiduciary duties by not laying down specific and actionable guidance for firms to make effective social disclosures.

If you are interested in learning more about the regulatory landscape for social disclosures, please read Strategic Focus: Unpacking The S In ESG Regulations.